Homes and Cars Point the Way for U.S.

By

Justin Lahart

Updated Sept. 9, 2012 10:06 p.m. ET

The U.S. economy has been rather dreary this year, but automobile sales and the housing market have been two brighter spots. It is probably no coincidence that they are among the most sensitive areas to Federal Reserve policy.

Dealerships are on pace to sell 14.2 million new cars and light trucks in 2012, the best since 2007 and more than the most optimistic forecasters penciled in at the start of the year. Auto makers, surprised by the strength, curtailed their usual retooling shutdowns this summer and have been taking steps like adding third shifts.

Housing has arguably been an even bigger surprise. Fannie Mae's latest housing forecast calls for sales of 4.96 million homes this year, compared with a January forecast of 4.74 million. And it looks as if sales would be even higher without an unexpected problem: In many areas, there is a lack of homes to meet demand.

Because the level of interest rates and credit availability matter so much to the auto and housing sectors—few people buy a car or house without a loan—both are typically highly sensitive to Fed policy. Things broke down in the recession as households repaired their balance sheets, but to judge from what has happened this year, Fed actions may be gaining a bit more traction.

Indeed, new auto-loan originations reached their highest level in the second quarter since 2007. The value of single-family-mortgage originations has risen to the highest level since mid 2010, when the expiration of home-buyer tax credits sparked a flurry of activity.

What's unsettling is that the improvement in housing and autos doesn't seem to have fed through to other areas of the economy. That, says AllianceBernstein economist Joseph Carson, is a sign of how much factors like Europe's financial morass and Washington's automatic 2013 tax increases and spending cuts, are weighing.

If he is right, it's not clear a third round of bond buying, or quantitative easing, the Fed looks likely to launch Wednesday will get other areas of the economy to pick up the baton from autos and housing.

The upside is that more clarity on Europe and the fiscal situation may see things really take off. The downside: Housing and autos might not run much longer without the rest of the economy kicking in.

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